We've all seen it. Someone who claims that markets don't fail. That market failure isn't a real thing. This isn't going to be that big or detailed of an r1. I was just thinking of an issue that I hope at least someone would find interesting to discuss.
Markets don't fail
Jan Boucek
Led by the UK’s own prime minister, markets are under assault for causing all our current economic woes. Blaming “market failure”, David Cameron is trying to outbid Nick Clegg and Ed Miliband for policies to reform the market system.
But markets don’t “fail.” They respond rationally, quickly and often brutally to conditions as they find them. If they see a shortage of supply or an excess of demand, they’ll drive prices higher. Conversely, excess supply or falling demand drives prices lower. If you’re looking for villains, examine why supply is constricted or inflated or why demand is stifled or encouraged. But don’t blame the markets for responding accordingly.
Adam Smith Institute
The Myth of Market Failure
Mises Review 12, No. 3, (Fall 2006)
Few opponents of the free market today support the replacement of capitalism by socialism. Even anti-capitalists have learned something from the collapse of the Soviet bloc. Instead, it is alleged that capitalism, though a good system, is imperfect. The state must act to "improve" the situation.
This at once raises the question, by what standard is the free market found wanting? Mainstream economics argues against the unconstrained market on the basis of certain efficiency criteria, and it is these that Brian Simpson subjects to penetrating critical examination in this excellent book. He considers a number of alleged market failures, e.g., externalities, predatory pricing, public goods, and asymmetries of information. In each case, he endeavors to show that the case against the market fails. (He discusses only microeconomic challenges to the market.)
Simpson does more. He not only counters the various challenges on their own ground: he rejects the terms of the indictment. The attacks on the market, he maintains, rest on flawed philosophical concepts and a false, altruistic morality. (As readers will already suspect, Simpson is an Objectivist.)
Mises Institute
There Is No Such Thing as "Market Failure"
"Market failure" (depending on which economist you ask on which day) is when the market "fails" to provide the optimal outcome for society. It is NOT at its peak efficiency, NOT delivering the most utility to the people, NOT delivering its maximum goods and services, and therefore is failing the population.
This then gives rise to the call for (wait for it!) "government intervention."
You see, with this magic medicine called "government intervention" we can repair the market, making it efficient once again. So we lower interest rates here, jack up taxes there, perhaps regulate or deregulate an industry (again depending on which economist you ask and what time zone he's in), and POOF! All better.
...
Immediately, leftists, socialists, internventionists, Keynesians, and other varied sorts of parasites are quick to point out the recovery that invariably ensued after these market failures. And if you were to dare ask "well, what if we just left the market alone" they all hold hands and sing in a cappella that old, standby classic tune "It Would Have Been Worse If We Did Nothing."
Captain Capitalism
Is this true? Can markets really never fail? Can we not find any examples of a market failure? Is there not, anywhere, a concrete example of a market failure?
r1: Yeah, sometimes they really do.
A market failure is a situation where free markets fail to allocate resources efficiently. Economists identify the following cases of market failure:
Economics Online
So we search for a concrete example of a market failure to make our point. And I think I may just have one. For you see, in the state of Connecticut, a great many houses, perhaps 20,000, which were built in the 1980s and 90s, are collapsing. And the reason is that the concrete of their foundations is failing. The foundations of these houses, 20-30 years old, is crumbing. Near disintegration in some cases.
In the US in the start of the 20th century a house foundation might be mortared stone, brick, something like that. But not poured concrete. That didn't come until later. Maybe the 1930s or so, certainly in the 1940s, the move towards poured concrete became common. And you know what? Most of those buildings are still standing. A building's foundation is subject to many stresses, and particularly when a building settles, which can cause cracks. And so it's really not uncommon for a house foundation to have some cracking to it. But they really don't tend to break up entirely to the point where the house itself becomes unsound. So when buying a house that's not brand new, you may hire a building inspector, and he may look at any place where the foundation is exposed, and recommend some repair if necessary. But unless there are major exposed cracks, you just assume the foundation is sound. Because, you know, it's solid concrete. And that lasts for many decades.
Except when it's not. And that's what's happening to 1000s of houses in Connecticut. There is some dispute in the cause. But the blame is narrowing down, and the main culprit is not considered to be pyrrhotite. "The stone aggregate used in the concrete mixture has high levels of pyrrhotite, an iron sulfide mineral that can react with oxygen and water to cause swelling and cracking. Over the past 30 years, the quarry has provided concrete for as many as 20,000 houses." So a mineral found in a quarry that was used as aggregate in the making of the concrete is undergoing a chemical reaction which in turn ruins the concrete of the foundation.
The concrete supplier is disputing that finding, and blaming the foundation contractors for defective workmanship. The property insurance companies are claiming that this has nothing to do with them, and so won't pay out. The homeowners are faced with losing essentially the whole value of their homes.
So why is this a market failure?
First, this is an information cost failure. This is a piece of information that the home buyer simply could not have known, or even known to have looked for. So the builder, whether knowingly or not, was selling a defective product. The builder in turn, wouldn't have any way of knowing, or even knowing to look, for the concrete contractor knowingly supplying a defective product. The company which actually poured the concrete was either using a defective product purchased from the supplier, or doing exceptionally bad workmanship. However the actual concrete pour is inspected. So getting away with exceptionally bad workmanship is problematical for the contractor. Which pushes the blame back to the material supplier. Did they know that they were supplying a defective product? Or did they just use a cheap source of gravel aggregate, not knowing of the potential problem?
Regardless of where the not knowing began, the current homeowners are screwed, not because of anything they did wrong, but because of a piece of information that they didn't even know was a piece of information that they had to try to learn. Information failure.
Another issue which this leads to, and one unresolved at this point so far as I have been able to learn, is the role of the insurance companies in this. Property insurance exists to compensate the property owners when their property is damaged or destroyed. But, as we all know, there are limitations in the contracts for what insurers consider themselves liable for. And, in this case, the insurers have decided that they are not liable for damage to the house resulting from defects in the construction or materials used. Insurance is a regulated industry. Should that have been a legitimate restriction of the policies? Current regulations don't seem to address that. Is that not also an information failure? The homeowners who have been paying the premiums on these policies now are losing their houses, and the policies that they thought protected them, don't.
We report, you decide.
ここには何もないようです